On Oct 31 last year I wrote about the oncoming recession. So yeah, I saw this coming. To be fair, so did every other financial expert worth their salt. The economy is cyclical and once every 10 years or so, the Global economy suffers a slowdown or recession of some sort. The last global recession we had was in 2008/2009 – so we’re pretty long overdue for one. The good times cannot, and from an economic standpoint, should not last.
So here we are finally in 2020, standing on the edge of what looks to be a long and hard global recession.
Are we in a recession yet?
Technically speaking – no. A recession is when a country’s GDP shrinks by two consecutive quarters. Simply put when a country’s economy reduces (this is measured by Gross Domestic Product – GDP) over a period of time, a country is said to be in a recession. Basically business is not growing and things aren’t booming.
So no, we are not in a recession… yet. We are however, primed for a recession in the coming months. We won’t even know if we are officially in a recession until the last quarter of 2020 (around October) and by then, it would have been too late to do anything meaningful to save ourselves and/or our businesses.
You don’t need to be an economic expert or have a PhD in Finance to tell that in the months to come, businesses will struggle and many will be forced to close their doors (quite literally in fact). COVID-19 has caused major disruptions to supply chains, cutting off international travel and forced many countries around the world to enforce curfews, movement control orders and lockdowns of the population. There will be an economic impact from all of this, but I do professionally believe that an economic hit now is important to protect the health of the people, because if people start falling ill from COVID-19 – that will impact the economy even more in the future.
To say that an economic hit now will trigger a recession is not an understatement. I would be surprised if it didn’t. Recessions are caused when businesses and individuals stop spending money. This aversion to spending is usually caused by a drop in income. With the lock down in place and the global COVID-19 outbreak, hospitality and tourism businesses are feeling the crunch. Because of this they start laying off staff and now these individuals have less money to spend on things like entertainment which then affects businesses in the entertainment industry, which then is forced to cut costs because of the drop in income which then reduces their spending power and so on. Businesses that suffer a drop in income are also going to be unable to engage with their suppliers, pay their accountant, engage a consultant – further reducing the spending power of all these other service providers. As you can see, there is a trickle down effect and that’s how recessions begin.
Fortunately, governments around the world are being proactive and coming up with financial aid packages to inject money into the economy and put cash in the hands of individuals and businesses in the form of wage subsidies, government-backed loans and assistance grants. This is a good move. It won’t stop the recession from happening, but it will make it easier for these countries to transition out of the recession later in the future.
Because we are standing on the edge of recession, that means that as businesses and as individuals we still have time to act! Last year I published a really simple guide on how to prepare for a recession – if you have already read it and actioned on it, GOOD JOB! However, seeing as now how I have more information about the oncoming recession, I will be writing a two-part guide with more detailed information on surviving the oncoming recession. The first part will be aimed at small businesses and the second part will be aimed at individuals.
Stay tuned for updates and stay safe.